Economy, Business And Markets

Lawmakers Call the Shots as Stock Traders Take Respite

The Tehran Stock Exchange’s benchmark index, TEDPIX, finished 102 points higher at 78,081.5 points on Wednesday
Companies are hardly generating cash flows and conservatism is keeping business investment low.Companies are hardly generating cash flows and conservatism is keeping business investment low.

Stock markets were in hibernation this week as the Economy Ministry, the parliament and the market regulator were preoccupied with executive salaries and reducing government debt to banks.

The Tehran Stock Exchange’s main index remained virtually unchanged and trading was limited throughout the week. The TEDPIX finished 102 points higher at 78,081.5 points on Wednesday, TSE data show.

Traders on Iran Fara Bourse were also taking respite. The market’s benchmark, IFX, edged 0.6% down to 798.55 points by Wednesday’s close, according to the IFB’s website. Investors see a bleak future for corporate profits as far as this year goes. Companies are hardly generating cash flows and conservatism is keeping business investment low.

  Reselling What Is Already Sold

Iranian lawmakers approved a government proposal to revalue the Central Bank of Iran’s blocked assets with new exchange rates and use the proceeds to repay government overdue debt to 12 commercial lenders. The proposal was approved on Wednesday and based on it interest and fines for late repayment of debt to lenders will be forgiven, Boursepress reported.

Based on the law, the CBI will value its ‘irretrievable and blocked overseas assets’ at current official exchange rates of around 30,000 rials to the US dollar. These assets were exchanged years back by the former government at various official exchange rates previously. The bank will have to pay the appreciation in rials the value of its assets to the government. The government will in turn use the money to repay its debt to commercial lenders.

This will be a large sum. The rial devalued severely in 2013. The official rate for the green back was below 10,000 rials before 2013, but within days jumped to 25,000 rials per dollar as the crisis intensified, and has steadily climbed ever since.

What this basically means is that the government is asking the CBI for its profits from appreciation of assets the government sold to the  bank years ago. Imagine the CBI bought a gold bar from the government for $100,000 in 2013. Today, gold prices are much higher. The gold bar is worth, say, $300,000. Now the parliament has ruled that the central bank pay the government the $200,000 difference. Meanwhile, the gold bar is still in a foreign country and no one can get to it!

The administration will be settling $15 billion (450 trillion rials) of its debt in this manner. Of course the money will be used to settle the debt, but its interest and fines for running late will be wiped off and forgiven.

  Executive Pay Cap

Also, the Securities and Exchange Organization’s chief Shapour Mohammadi has sent the Minister of Economy and Finance Ali Tayebnia an undisclosed proposal to tweak a law passed in May to cap executive pay in private and public companies, the SEO news agency reported.

According to Jafar Jamali, SEO deputy head for legal affairs, the pay cap and ban being on more than one company’s board still remains, but there are proposed changes in the law’s wording.

Publicly owned companies can pay a maximum three percent of their total dividends as bonus to their board members, the law stipulates. The figure is capped at six percent for private companies. Furthermore, no active board member will receive a bonus larger than the annual salary.

Well connected executives and politicians used to hold board positions in multiple companies previously. This way they collected large yearend bonuses from multiple sources. The parliament is fighting this with its amendment of Article 241 of the Commercial Law. Now, no one can hold board a position in more than one company owned partially by the government or other state organizations.

Highlight: Iran Fara Bourse’s main index, IFX, edged 0.6% down to 798.55 points by the week’s end